Venture capitalist Jim Breyer sits on the boards of both Facebook and Wal-Mart.

(Fortune) -- Think of it as Silicon Valley's seven-year itch. That's about the length of time needed for the typical investment, employment, and emotional bubble to inflate and then
burst in the global center of the technology industry. The last bubble, known forever as the dot-com craze, started and ended in the Valley.

Those who watched its giddy rise and sickening fall remember the predictable way the collapse began: in denial. Smack in the middle of the fun - and well after the good times had
ended - the common refrain was that the IT business was immune to the vicissitudes of the macro economy. It wasn't then, of course, and it isn't during the ad-driven, Googled techland
of today either.

The difference this time around may well be that some of the loudest and most thoughtful voices are aware that Silicon Valley's quaint notions of exceptionalism are a thing of the
past.

A veteran's view

Consider venture capitalist Jim Breyer, a uniquely qualified observer of both the national picture and the local scene. As lead independent director of retailer Wal-Mart (WMT, Fortune 500) and the initial venture investor in Facebook, the buzziest startup
of the Web 2.0 era, Breyer has a unique perch for a technology guy.

Normally a glass-half-full sort, what he's seeing just now is not pretty. The ramifications for the tech world of an overall economic slowdown are "huge," says Breyer, who has been at
the VC game for 20 years and knows something about technology investment cycles.

"Silicon Valley is often very delusional," he continues. "So one of the challenges is to step back and say, 'If there is a recession, why won't advertising spending be cut
dramatically? And if advertising spending is cut dramatically, why doesn't that deeply affect our consumer Internet companies?' It's always my view that it does. We don't expect there
to be as much of an impact, perhaps, on great companies in the Valley such as Google. But we expect there to be a significant effect."

In fact, a more than significant effect is already being felt. Google (GOOG, Fortune 500), which carried the mantle of imperviousness from its 2004 initial
public offering through the end of last year, has been in a free fall, at least measured by the price of its stock. (GOOG shares are down 41% from their peak last November.)

The most notable catalyst of Google's stock decline was a January report by the research firm comScore, which showed a rare falloff in the growth rate of consumers clicking on
Google's search ads. That's a big deal, because search ads account for nearly all the company's profits. Dominant market share and free meals be damned, goes the thinking: If Google's
profitability is in any way threatened, then no company in tech is safe.

Wilting techs

Google so far hasn't copped to a slowdown. It faults comScore's methods and suggests that abnormal patterns of holiday clicking affected the numbers. Yet Google isn't alone. Yahoo
(YHOO, Fortune 500) cited "headwinds" in its business in January - a turn of events
that socked its stock price and opened the door for Microsoft's (MSFT, Fortune 500) unsolicited offer to buy the company.

The turmoil isn't restricted to advertising-sensitive businesses. Cisco (CSCO, Fortune 500), which sells to the biggest companies in the world, has warned of
several quarters of economic "bumps." Intel (INTC, Fortune 500) disappointed investors by cutting profit expectations due to weak
pricing in a segment of the memory-chip market. (The tech giant seems to be pushing the one global commodity whose prices aren't rising.) Even Apple (AAPL, Fortune 500) has plunged of late due to fears that its growth rate will suffer
as consumers pull back their spending.

Signs of weakness extend beyond the company level. Employment dropped by more than 33,000 jobs in the five-county Bay Area in January, as measured by the California state government.

Commercial real estate, a rare bright spot in much of the country, is showing strains as well. After years of gains, occupancy for offices, R&D facilities, and industrial tenants
declined by 1.5 million square feet in Silicon Valley in the fourth quarter, according to CB Richard Ellis.

An investing peak?

Meanwhile, venture capital is still rolling in. The National Venture Capital Association reports that 2007 saw the highest level of VC investments - $29.4 billion pumped into 3,813
deals - since 2001. But don't be too relieved by that last figure. As we know from those doomed 2001-era investments, ebullience among venture capitalists can be a very bad omen, if
not a sure-fire sign of a market top.

Whereas the last tech downturn infected the rest of the economy, this time it's the other way around. What began as a mortgage crisis in selected U.S. markets has become a worldwide
credit crunch, and tech is too big and too broad not to catch the rest of the world's cold.

"When Silicon Valley sold mostly to the military or industrial products or just in telecommunications, maybe it was a little less exposed," says author and investor Andy Kessler.
"Today it's a lot more diverse than it was 20 years ago or even ten years ago. So if there's a recession, it's going to get hit."

In other words, the Valley is probably going to have a difficult time keeping up its us-vs.-them mentality. Which brings us back to Jim Breyer, the venture capitalist with the board
seats in Palo Alto, Calif., and Bentonville, Ark.

"I think we're in for a very difficult year to two years," he says. "Rarely have we seen credit markets this tight. We don't know what's happening with many of the consumer staples.
We see gas prices continuing to rise. We see great fear around jobs."

He sounds grim, but he really isn't - not about the long term, anyway. The best companies, he says, prove their mettle in downturns. And Silicon Valley, with all its ups and downs, is
the ultimate proving ground.